$CVNA is down 27% from its January peak and reports Q4 earnings tonight. The selloff didn't start with a miss. It started with a short-seller report alleging the company inflated earnings by over $1 billion. The SEC is reportedly investigating. And management has said almost nothing.
The Setup
Carvana's turnaround story was one of the best on Wall Street. The stock went from near-bankruptcy to S&P 500 inclusion in December 2025. Revenue grew 44% year-over-year. Retail units were up 44%. The company was profitable again.
Then Gotham City Research dropped a bomb.
What Gotham Alleges
The short-seller report targets the relationship between Carvana and DriveTime, the used-car dealership empire owned by Ernie Garcia II — the father of Carvana CEO Ernie Garcia III. Gotham claims:
- $1B+ in inflated earnings through undisclosed related-party transactions with DriveTime and its financing arm Bridgecrest
- Circular funding mechanisms that obscured Carvana's true financial position
- Coordinated insider selling — executives dumped over $500M in shares in recent months, including 24,500+ shares sold on a single day in early February
Carvana called the report "inaccurate and intentionally misleading." But the company hasn't provided a detailed rebuttal. The silence is louder than the denial.
The Numbers Going In
| Metric | Q4 Expected | Context |
|---|---|---|
| Revenue | ~$5.19B | Up from $3.55B in Q4 2024 |
| EPS | $1.10 | Up 244% YoY if analysts are right |
| Retail units | 150,000+ | Record quarter |
| Stock price | ~$342 | Down 27% from $485 peak |
| P/E (trailing) | 83x | Apple trades at ~30x |
The operational numbers are strong. Nobody disputes that. The question is whether the numbers are real.
Why This Earnings Call Is Different
Tonight isn't about beats and misses. Three things matter more than revenue:
1. Will management address the Gotham allegations directly? So far, Carvana has issued a boilerplate denial and gone quiet. Reddit and FinTwit are begging for transparency. If management dodges again, the stock has further to fall.
2. What does the SEC investigation mean? No formal charges yet. But reports of an SEC investigation into related-party transactions don't just vanish. A judge already granted a motion to compel release of DriveTime-related documents. More disclosure is coming whether Carvana likes it or not.
3. How much insider selling happened in Q4? The $500M+ in executive sales is a bad look regardless of the accounting questions. If the 10-K reveals more, sentiment could crater.
The Bull Case
Strip away the Gotham noise, and Carvana's business is legitimately impressive. Revenue nearly doubled in two years. The operational restructuring worked. Used-car demand remains strong, and Carvana's platform is the clear tech leader in the space.
Wall Street still sees the stock reaching ~$480 — a 40%+ upside from here. The argument: Gotham is a short seller with a financial incentive to tank the stock, and the allegations will prove overblown once management responds in detail.
The Bear Case
An 83x P/E for a used-car retailer is aggressive even without accounting questions. CarMax does the same thing at 15x earnings. If even a fraction of Gotham's allegations hold up, the profitability story unravels. And the Garcia family's dual control of both Carvana and DriveTime creates a conflict of interest that most governance-focused investors can't ignore.
The class-action lawsuits are piling up. Multiple law firms launched securities investigations within days of the Gotham report. That's not normal.
Bottom Line
Carvana built one of the best turnaround stories in recent memory. But a turnaround means nothing if the books are cooked. Tonight's call will either restore confidence or accelerate the unraveling. If management comes out swinging with specifics — detailed breakdowns of DriveTime transactions, clear answers on insider sales, a real rebuttal — the stock bounces hard. If they hide behind lawyers and talk about "retail unit growth," the 27% drop is just the opening act.
The market isn't pricing in fraud. It's pricing in uncertainty. And uncertainty, for a stock at 83x earnings, is poison.
CVNA